There is a fascinating thing about human beings that they can relate to any subject. One such subject is economics.
Economics as a subject is often mistaken and restricted to books only. However, when it comes to applying it practically people often get confuse.
Economics is vast and intriguing. So, it certainly contains “types”. One such type is behavioural economics.
As the name suggests, behavioural economics contains hues of psychology and economics to understand how and why people behave the way they do in the real world.
BEHAVIORAL ECONOMICS HELP YOU TO CHOOSE WELL, TO CHOOSE YOUR HEART OUT
Suppose you are doing well in your life, in terms of money, in terms of a lavish lifestyle, in terms of having a perfect family and suddenly an idea of startup pops up in your mind you want to comment the things of your own now you don’t want to resume your 9 to 5 job you want to work on your own but how?
What exactly do you need?
The only thing you need is a push either internally or externally. Push in behavioural economics is a nudge.
According to Hallsworth “Nudge is about changing the presentation of choices for people so they’re more likely to choose one option rather than the other.”
Briefly, Nudge is a push that we need to choose the best of the best.
Given are the following examples where nudge is being used and you might miss to notice:-
1. It is assumed and accepted that sales contain a relationship with advertising that means the more you advertise the more sales you can pitch. But, Zara is an exceptional case here. It only spends 0.3% of sales on advertising. Never produces too many products of a single design. It creates the “fears of paucity” in the minds of the customer which makes them take quick decisions to buy their favourite designs as they know they will go out of stock soon.
And the perceived fear of something is particularly motivating as we are loss averse.
What this means is that we find losses roughly twice as painful as gains are pleasurable.
2.There is a high possibility that people will choose a medium cup of coffee/beverage/cold drink at a cafe. This is the Goldilocks Effect. In a study at a McDonald’s outlet, people were asked to choose between a range of different drink size options. Regardless of the size options offered, 80% of them always chose the medium size option. This happens because we assume the middle option is the typical option. We will always go with the option that requires less effort to think about.
3.If I say playing music can increase your sales, Shall you believe in it? You have to.
An experiment in the UK tested playing music from different countries in a wine shop. The research found that French wine easily outsold German wine when French music was playing and vice-versa.
4. Do you think that just obviating the symbol of currency can pitch your sales?
As peculiar it sounds, as interesting the application is.
Only thinking about spending money can make you experience a kind of physical pain. If you were to be put into a brain scanner right now and we played a game where you lost your money, the part of the brain that would light up is the same part that feels physical pain.
Many restaurants and cafes adapt this strategy to welcome more and more customers.
5. If I say when supermarkets double the size of trolleys, sales will increase as much as 40%?
As humans, we like to go with the flow of a default setting.
Many renowned supermarkets for example- big bazaar, apna bazaar etc adapt this very strategy to attract millions of more customers.
Economics carries a bigger picture when it comes to its applications. In 2018 Richard Thaler won the Nobel prize in Economic Sciences for his gargantuan contributions to behavioural economics. He quoted “A nudge, as we will use the term, is any aspect of the choice architecture that alters people’s behaviour in a predictable way without forbidding any options or significantly changing their economic incentives.”
Humans are imperfect, they make irrational decisions most of the time, they make certain errors in every walk of their life, they are more complicated than they seem.
But what exactly do they need?
They always need a nudge, a push to come out of their comfort zone and choose the best from the given opportunities (costs).